Corporate social responsibility (CSR) in India has traditionally been seen as a philanthropic activity and primarily refers to business practices involving initiatives that benefit society. However, the CSR approach should be holistic and integrated with the core business strategy for addressing businesses’ social and environmental impacts. It’s no longer adequate for companies to conduct business operations without considering the world in which they operate.
The Ministry of Corporate Affairs recently made amendments to Section 135 of the Companies Act, 2013 on Jan. 22, 2021. The key provisions of the Companies (CSR Policy) Amendment Rules 2021 include:
Rule 2 – Under the Amended CSR Rule, new definitions for the following have been introduced:
- Administrative overheads,
- CSR Policy,
- CSR committee,
- Ongoing projects,
- Public authority, and
- International Organisations
Rule 4 – CSR implementations
- A company may engage international organizations to design, monitor, and evaluate CSR projects as per its CSR policy.
- A company may also collaborate with other companies to undertake CSR activities so that the CSR committees of respective companies can report separately on such projects or programmes following these rules.
- In case of an ongoing project, the Board of a corporation shall monitor the implementation of the project concerning the approved timelines. It shall be competent to make modifications for smooth implementation of the project within the overall permissible period.
Rule 5 – CSR Committee
Companies with CSR obligations below 50 lakhs are now exempted from the establishment of a CSR committee. Through their respective boards, they will now be allowed to fulfill this responsibility.
Rule 7 – CSR expenditure
According to the companies (CSR Policy) Amendment Rules, 2021, the administrative overheads shouldn’t exceed five percent of the entire CSR expenditure of the corporate for the fiscal year. If a company spends an amount above requirement, such excess amount may be set off against the CSR budget for the succeeding three financial years subjected to the following conditions:
- The excess amount available for set-off shouldn’t include the excess arising out of the CSR activities
- The Board of the company shall pass a resolution thereto effect
Rule 8 – CSR reporting
The Board’s Report of a corporation about any fiscal year shall include an annual report on CSR.
Rule 9 – Website Disclosure
The Board of Directors of the Company needs to disclose the composition of the CSR Committee mandatorily and CSR Policy and Projects approved by the Board on their website for public access.
Rule 10 – Transfer of unspent CSR
It means the company will transfer the unspent CSR amount to any fund included in schedule VII of the Companies Act.
The Companies Act, 2013 has introduced CSR to the forefront and is promoting greater transparency and disclosure. The amendments explicitly focused on the internal control measures of a company and improved transparency through the required disclosure of Corporate Social Responsibility activities and evaluation results. These rules may raise the compliance burden on companies. However, these are also required to provide businesses with increased flexibility in meeting their Corporate Social Responsibility (CSR) obligations. These will also provide the much-needed motivation to the companies for conceptualization and implementation of outcome and impact-oriented CSR projects.